<PAGE>
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C 20549

/X/      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

              FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 OR

/ /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 333-43549

                        EXTENDICARE HEALTH SERVICES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                        <C>                                       <C>
           DELAWARE                                    8051                                98-0066268
(STATE OR OTHER JURISDICTION OF            (PRIMARY STANDARD INDUSTRIAL                 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)              CLASSIFICATION CODE NUMBER)              IDENTIFICATION NUMBER)
</TABLE>

                            111 WEST MICHIGAN STREET
                            MILWAUKEE, WI 53203-2903
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

                                 (414) 908-8000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
                       SEE TABLE OF ADDITIONAL REGISTRANTS

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes /X/       No / /
<PAGE>
                        EXTENDICARE HEALTH SERVICES, INC.
                                      INDEX

<TABLE>
<CAPTION>
PART I.    FINANCIAL INFORMATION                                                                                  PAGE
-------    ---------------------                                                                                  ----
<S>                                                                                                               <C>
Item 1     Condensed Financial Statements:
           Consolidated Statement of Operations for the three months and nine months ended
              September 30, 2001 and 2000..................................................................         3
           Consolidated Balance Sheets, September 30, 2001 and December 31, 2000...........................         4
           Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000.....         5
           Notes to Condensed Consolidated Financial Statements............................................         6
Item 2     Management's Discussion and Analysis of Financial Condition and Results of Operations..........          8
Item 3     Quantitative and Qualitative Disclosures about Market Risk......................................        15

PART II.   OTHER INFORMATION:
--------   ------------------
Item 1     Legal Proceedings...............................................................................        17
Item 2     Change in Securities............................................................................        17
Item 3     Defaults Upon Senior Securities.................................................................        17
Item 4     Submission of Matters to a Vote of Security Holders.............................................        17
Item 5     Other Information...............................................................................        17
Item 6     Exhibits and Reports on Form 8-K................................................................        17
           Signatures......................................................................................        18
</TABLE>




                                       2
<PAGE>
                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.          FINANCIAL STATEMENTS

                        EXTENDICARE HEALTH SERVICES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
     FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                                   SEPTEMBER 30,                 SEPTEMBER 30,
                                                                                2001           2000           2001           2000
                                                                             ---------      ---------      ---------      ---------
<S>                                                                          <C>            <C>            <C>            <C>
         REVENUES:
           Nursing and assisted living centers .........................     $ 197,753      $ 225,661      $ 578,378      $ 677,072
           Outpatient therapy ..........................................         2,357          2,478          7,271          7,458
           Other .......................................................         3,915          1,971         12,597          5,589
                                                                             ---------      ---------      ---------      ---------
                                                                               204,025        230,110        598,246        690,119
         COSTS AND EXPENSES:
           Operating ...................................................       179,637        215,130        523,021        625,736
           General and administrative ..................................         7,672         11,350         25,011         33,433
           Lease costs .................................................         3,641          3,955         11,352         11,579
           Depreciation and amortization ...............................         9,731         11,189         30,226         34,074
           Interest expense ............................................         9,106         11,285         28,937         35,221
           Interest income .............................................          (511)          (325)        (1,567)          (956)
           Loss on impairment of long-lived assets .....................         1,685             --          1,685             --
           Loss (gain) on disposal of assets and other items ...........        16,402           (940)        24,246            786
                                                                             ---------      ---------      ---------      ---------
                                                                               227,363        251,644        642,911        739,873
                                                                             ---------      ---------      ---------      ---------
         LOSS BEFORE PROVISION FOR INCOME TAXES ........................       (23,338)       (21,534)       (44,665)       (49,754)
         Income tax benefit ............................................        (9,249)        (7,786)       (15,126)       (17,601)
                                                                             ---------      ---------      ---------      ---------
         LOSS BEFORE EXTRAORDINARY ITEM ................................       (14,089)       (13,748)       (29,539)       (32,153)
                                                                             ---------      ---------      ---------      ---------
         Extraordinary loss on early retirement of debt (net of
                income taxes, $0, $246, $30, and $246, respectively) ...            --           (436)           (45)          (436)
                                                                             ---------      ---------      ---------      ---------
         NET LOSS ......................................................       (14,089)       (14,184)       (29,584)       (32,589)
                                                                             ---------      ---------      ---------      ---------
         OTHER COMPREHENSIVE INCOME (LOSS):
             Unrealized gain on investments, before tax ................           391          1,697             48            992
             Loss on cash flow hedges, before tax ......................          (271)            --         (2,014)            --
                                                                             ---------      ---------      ---------      ---------

             Other comprehensive income (loss),  before tax ............           120          1,697         (1,966)           992
             Income tax expense (benefit) related to items of
                other comprehensive income (loss) ......................            57            679           (690)           397
                                                                             ---------      ---------      ---------      ---------
             Other comprehensive income (loss), net of tax .............            63          1,018         (1,276)           595
                                                                             ---------      ---------      ---------      ---------
          COMPREHENSIVE LOSS ...........................................     $ (14,026)     $ (13,166)     $ (30,860)     $ (31,994)
                                                                             =========      =========      =========      =========
</TABLE>

         The accompanying notes are an integral part of these condensed
consolidated financial statements.




                                       3
<PAGE>
                        EXTENDICARE HEALTH SERVICES, INC.

                           CONSOLIDATED BALANCE SHEETS
                    SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>
                                    ASSETS                                              SEPTEMBER 30, 2001
                                                                                           (UNAUDITED)             DECEMBER 31, 2000
                                    ------                                              ------------------         -----------------
<S>                                                                                     <C>                        <C>
 CURRENT ASSETS:
   Cash and cash equivalents .................................................              $   4,114                  $   1,641
   Accounts receivable, less
       allowances of $16,259 and $16,329, respectively .......................                109,372                    130,032
   Inventories, supplies and prepaid expenses ................................                  9,474                      9,383
   Debt service trust funds ..................................................                    244                         71
   Deferred state income taxes ...............................................                    140                         --
   Due from shareholder -
       Federal income taxes receivable .......................................                  1,694                     24,235
       Deferred Federal income taxes .........................................                 11,758                     10,782
                                                                                            ---------                  ---------
       Total current assets ..................................................                136,796                    176,144

 PROPERTY AND EQUIPMENT, NET .................................................                479,721                    507,536
 GOODWILL AND OTHER INTANGIBLE ASSETS, NET ...................................                 78,518                     81,310
 DEFERRED STATE INCOME TAXES AND OTHER CHARGES ...............................                  1,532                        386
 OTHER ASSETS ................................................................                110,137                    108,214
                                                                                            ---------                  ---------
   Total Assets ..............................................................              $ 806,704                  $ 873,590
                                                                                            =========                  =========


                     LIABILITIES AND SHAREHOLDER'S EQUITY

 CURRENT LIABILITIES:
   Bank indebtedness .........................................................              $   2,380                  $     538
   Current maturities of long-term debt ......................................                 12,515                     12,706
   Accounts payable and accrued liabilities ..................................                122,660                    107,585
   Income taxes payable ......................................................                  1,983                      1,344
   Deferred state income taxes ...............................................                     --                        181
   Due to shareholders and affiliates ........................................                  5,930                      9,317
                                                                                            ---------                  ---------
       Total current liabilities .............................................                145,468                    131,671

 ACCRUAL FOR SELF-INSURED LIABILITIES ........................................                 72,540                     50,087
 LONG-TERM DEBT ..............................................................                377,139                    438,441
 OTHER LONG-TERM LIABILITIES .................................................                 43,737                     40,716

 DUE TO SHAREHOLDER AND AFFILIATES
       Deferred Federal income taxes and other ...............................                 14,505                     28,485

 MINORITY INTERESTS ..........................................................                     14                         29
                                                                                            ---------                  ---------
       Total liabilities .....................................................                653,403                    689,429
                                                                                            ---------                  ---------

 SHAREHOLDER'S EQUITY:
   Common stock, $1 par value, 1,000 shares authorized,
       947 shares issued and outstanding .....................................                      1                          1
   Additional paid-in capital ................................................                208,787                    208,787
   Accumulated other comprehensive loss ......................................                 (2,979)                    (1,703)
   Accumulated deficit .......................................................                (52,508)                   (22,924)
                                                                                            ---------                  ---------
       Total Shareholder's Equity ............................................                153,301                    184,161
                                                                                            ---------                  ---------
   Total Liabilities and Shareholder's Equity ................................              $ 806,704                  $ 873,590
                                                                                            =========                  =========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.




                                       4
<PAGE>
                        EXTENDICARE HEALTH SERVICES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                                   Nine Months Ended September 30,
                                                                                                    2001                     2000
                                                                                                  --------                 --------
<S>                                                                                               <C>                      <C>
     OPERATING ACTIVITIES:
     Net loss ....................................................................                $(29,584)                $(32,589)
     Adjustments to reconcile net loss to net cash
           provided from operating activities:
           Depreciation and amortization .........................................                  31,799                   35,531
           Provision for uncollectible accounts receivable .......................                   7,302                    8,576
           Increase in self-insured liabilities ..................................                  22,453                   35,642
           Provision for punitive damages ........................................                      --                    9,000
           Loss on disposal of assets and other items ............................                  13,282                      786
           Loss on impairment of long-lived assets ...............................                   1,685                       --
           Deferred income taxes .................................................                 (15,704)                 (15,638)
           Extraordinary loss on early retirement of debt ........................                      45                      436

     Changes in assets and liabilities:
           Accounts receivable ...................................................                  12,407                   (3,923)
           Inventories, supplies and prepaid expenses ............................                    (126)                   1,633
           Debt service trust funds ..............................................                    (173)                   1,710
           Due from shareholder-Federal income taxes .............................                  22,542                   15,867
           Accounts payable and accrued liabilities ..............................                     290                  (17,864)
           Income taxes payable/receivable .......................................                     639                      412
                                                                                                  --------                 --------
              Cash provided from operating activities ............................                  66,857                   39,579

     INVESTING ACTIVITIES:
           Payments for purchase of property and equipment .......................                  (9,681)                  (9,850)
           Proceeds from sale of property and equipment ..........................                   7,292                    5,989
           Proceeds received from divestiture agreement ..........................                      --                   30,000
           Income taxes recovered on disposal of assets ..........................                      --                   29,000
           Changes in other non-current assets ...................................                  (1,085)                  (2,454)
                                                                                                  --------                 --------
              Cash (used for) provided from investing activities .................                  (3,474)                  52,685

     FINANCING ACTIVITIES:
           Proceeds from issuance of long-term debt ..............................                      --                    3,048
           Other long-term liabilities ...........................................                  (1,243)                  (1,471)
           Payments of long-term debt ............................................                 (61,493)                 (95,635)
           Changes in bank indebtedness ..........................................                   1,841                    1,859
           Distribution of minority interests' earnings ..........................                     (15)                    (589)
                                                                                                  --------                 --------
              Cash used for financing activities .................................                 (60,910)                 (92,788)
                                                                                                  --------                 --------

     INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................                   2,473                     (524)
     CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD ...............................                   1,641                    2,941
                                                                                                  --------                 --------
     CASH AND CASH EQUIVALENTS END OF PERIOD .....................................                $  4,114                 $  2,417
                                                                                                  ========                 ========
</TABLE>


The accompanying notes are an integral part of these condensed consolidated
financial statements.




                                       5
<PAGE>
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

         The accompanying condensed consolidated financial statements reflect
the operations of Extendicare Health Services, Inc. and its subsidiaries
("Extendicare" or the "Company") in accordance with accounting principles
generally accepted in the United States of America. Extendicare, a Delaware
corporation is a wholly owned subsidiary of Extendicare Inc., a Canadian
corporation.

BASIS OF PRESENTATION

         The accompanying financial statements include the accounts of the
Company and its majority-owned subsidiaries. All transactions between
Extendicare and its majority-owned subsidiaries have been eliminated.

         The financial information presented as of any date other than December
31 has been prepared from the books and records without audit. The accompanying
condensed consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
the footnotes required by generally accepted accounting principles for complete
statements. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such
financial statements, have been included.

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

         Certain reclassifications have been made to the 2000 consolidated
financial statements to conform to the presentation for 2001.

         These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 2000 contained in the Company's Annual Report in Form
10-K.

2-NEW ACCOUNTING PRONOUNCEMENTS

         On July 20, 2001, the FASB issued Statement No. 141, "Business
Combinations", and Statement No. 142, "Goodwill and Other Intangible Assets".
Statement 141 requires that all business combinations be accounted for under a
single method - the purchase method. Use of the pooling-of-interests method no
longer is permitted. Statement 141 requires that the purchase method be used for
business combinations initiated after June 30, 2001. Statement 142 requires that
goodwill and intangible assets with an indefinite life no longer be amortized to
earnings, but instead be reviewed for impairment. The amortization of goodwill
and intangible assets with an indefinite life acquired in a transaction
completed prior to June 30, 2001, ceases upon adoption of the Statement, which
the Company is required to adopt no later than our fiscal year beginning January
1, 2002. Management is currently researching the impact these impairment tests
will have on the consolidated financial position or results of operations and
will be able to estimate any impact in the Company's December 31, 2001 Annual
Report.

3-ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

         As of January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and
Hedging Activities" and SFAS No. 138 "Accounting for Derivative Instruments and
Hedging Activities". Following are disclosures under SFAS No. 133 and SFAS No.
138.




                                       6
<PAGE>
Objectives and Strategies

         The Company uses variable-rate long-term debt to finance its
operations. These debt obligations expose the Company to variability in interest
payments due to changes in interest rates. If interest rates increase, interest
expense increases. Conversely, if interest rates decrease, interest expense also
decreases.

         Management believes that it is prudent to limit the variability of a
portion of its interest payments. It is the Company's objective to hedge between
40% to 80% of total variable-rate debt. To meet this objective, management has
entered into interest rate swaps. These swaps change the variable-rate cash flow
exposure on variable-rate long-term debt to fixed-rate cash flows. Under the
interest rate swaps, the Company receives variable interest rate payments and
makes fixed interest rate payments.

         The Company does not enter into derivative instruments for any purpose
other than cash flow hedging purposes. The Company does not speculate using
derivative instruments.

Risk Management Policies

         The Company assesses interest rate cash flow risk by continually
identifying and monitoring changes in interest rate exposures that may adversely
impact expected future cash flows and by evaluating hedging opportunities. The
Company maintains risk management control systems to monitor interest rate cash
flow risk attributable to both the Company's outstanding or forecasted debt
obligations as well as the Company's offsetting hedge positions. The risk
management control systems involve the use of analytical techniques, including
cash flow sensitivity analysis, to estimate the expected impact of changes in
interest rate rates on the Company's future cash flows.

Quantitative Disclosures

         As of May 29, 2001, $25 million in interest rate swaps maturing
February 27, 2003 were terminated in exchange for a cash payment of $0.5
million. This amount will be amortized to interest expense over the remaining
term of the swap. As of September 30, 2001, the Company has interest rate swaps
(used to hedge variable-rate cash flow exposure on variable-rate long-term debt)
with notional amounts of $50 million maturing in February 2002 and $25 million
maturing in February 2003. Interest expense for the nine months ended September
30, 2001 includes $49,000 in net gains representing the cash flow hedge's
ineffectiveness arising from differences between the terms of the interest rate
swap and the hedged debt obligation.

         Changes in the fair value of interest rate swaps designated as hedging
instruments of the variability of cash flows associated with floating-rate,
long-term debt obligations are reported as Accumulated Other Comprehensive
Income ("AOCI") as a component of Shareholder's Equity. These amounts are
subsequently reclassified into interest expense as a yield adjustment in the
same period in which the related interest on the floating-rate debt obligations
affects earnings.

         The impact as of January 1, 2001 arising from the adoption of the
standards (relating to the fair value of interest rate swaps) was an increase of
$0.2 million in other long-term liabilities and a decrease of $0.2 million in
AOCI. As of September 30, 2001, the fair value of the interest rate swaps
designated as hedging instruments is a liability recorded in other long-term
liabilities of $1.6 million and the loss charged to AOCI (net of income tax
effect) for the nine months ended September 30, 2001 is $1.3 million. During the
year ending December 31, 2001, approximately $0.7 million of losses in AOCI (net
of income tax effect) related to the interest rate swaps are expected to be
reclassified into interest expense as a yield adjustment of the hedged debt
obligation.




                                       7
<PAGE>
4-COMMITMENTS AND CONTINGENCIES

Capital Expenditures

         At September 30, 2001, the Company had capital expenditure purchase
commitments outstanding of approximately $6.5 million.

Reimbursement

         The Company is unable to predict whether the Federal or any state
government will adopt changes in their reimbursement systems, or if adopted and
implemented, what effect such initiatives would have on the Company. Limitations
on Medicare and Medicaid reimbursement for health care services are continually
proposed. Changes in applicable laws and regulations could have an adverse
effect on the levels of reimbursement from governmental, private, and other
sources.

Insurance and Self-Insured Liabilities

         The Company insures certain risks with affiliated insurance
subsidiaries of Extendicare, Inc., and certain third-party insurers. The
insurance policies cover comprehensive general and professional liability,
property coverage, workers' compensation and employer's liability insurance in
amounts and with such coverage and deductibles as the Company deems appropriate,
based on the nature and risks of its business, historical experiences and
industry standards. The Company also self-insures for health and dental claims,
in certain states for workers' compensation and employers' liability and from
January 2000, for general and professional liability claims. Self-insured
liabilities with respect to general and professional liability claims are
included within the Accrual for Self-Insured Liabilities.

Litigation

         The Company and its subsidiaries are defendants in actions brought
against them from time to time in connection with their operations. While it is
not possible to estimate the final outcome of the various proceedings at this
time, such actions generally are resolved within amounts provided.

         The U.S. Department of Justice and other Federal agencies are
increasing resources dedicated to regulatory investigations and compliance
audits of health-care providers. The Company is currently unaware of any
regulatory matters which could have a material adverse effect on the Company's
financial position or results of operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATION

         The Company is one of the largest providers of long-term care and
related services in the United States. As of September 30, 2001, the Company
operates for itself 138 nursing facilities (14,092 beds) and 36 assisted living
and retirement facilities (1,756 units) located in 13 states. The Company also
manages 18 nursing facilities (2,326 beds) and 5 assisted living and retirement
facilities (156 units) and provides selected consulting services to 35 nursing
facilities (3,269 beds). In total, the Company operates for itself, manages or
provides selected consulting services to 232 long-term care facilities (21,599
beds) in 16 states, of which 191 are nursing facilities (19,687 beds) and 41 are
assisted living and retirement facilities (1,912 units). The Company is one of
the top ten operators of long-term care facilities in the United States in terms
of both number of beds and revenues.

SIGNIFICANT EVENTS

         The following is a summary of significant events in the nine months
ended September 30, 2001 and September 30, 2000.

         On September 30, 2001, subject to third party approvals including state
licensure, the Company transferred the operations of all of its Texas nursing
homes to Senior Health Properties - Texas, Inc. Under Texas law, governmental
approvals are retroactively effective following successful completion of its
facility-by-facility surveys under new management, of which nine have been
finalized to date. The transaction involves 17 nursing homes, with a capacity of
1,421 residents, of which 13 facilities will be subleased and the remainder
leased on a five-year term from the Company. Senior Health will operate the

                                       8
<PAGE>
subleased facilities for their remaining lease terms, one of which expires on
October 31, 2001, and the remainder until February 2012. The annual rental
income is approximately $4.0 million, or $1.8 million in excess of the Company's
current annual lease costs, and will escalate in alignment to the existing lease
and in alignment with Medicaid rate increases for the owned facilities. Senior
Health has the right of first refusal on the purchase of the four owned
facilities.

         On April 18, 2001, the Company completed the sale of two leased nursing
homes in Florida, with capacity for 240 beds, for gross proceeds of $11.4
million. The buyer was Tandem Health Care, Inc., which had operated the
facilities under a lease agreement with a purchase option. Proceeds consisted of
cash of $7.0 million, a $2.5 million interest bearing five-year note and $1.9
million in cumulative dividend preferred shares, mandatorily redeemable after
five years. The Company's carrying value of the two facilities was $9.2 million.
Tandem continues to operate seven nursing homes under a lease agreement with the
Company, with an option to purchase these facilities at anytime during the lease
term. The gain on sale of $ 2.2 million has been deferred in accordance with
FASB Statement No. 66, "Accounting for Sales of Real Estate", when a significant
portion of the proceeds has not been received, and the ultimate determination of
the gain is dependent on Tandem exercising all remaining options. The Company
applied $4.0 million of the net cash proceeds to further reduce its term bank
debt.

         The Company sold seven outpatient therapy facilities for $0.6 million
on February 19, 2000. The sale resulted in a pretax loss of $0.1 million.

         During the year ended December 31, 2000, the Company disposed of, or
leased to third party lessees, all 32 of its facilities (3,427 beds) in the
State of Florida through a series of transactions, two of which involved lease
agreements with operators who have an option to purchase the properties, and one
in which the Company retains an interest in the properties through the
contingent consideration terms of the agreement. During the year ended December
31, 2000, the Company also sold two formerly closed facilities, which in
conjunction to the Florida divestitures, resulted in cash proceeds of $37.7
million, of which $33.1 million was applied to reduce debt.

RESULTS FROM OPERATION

         The following table sets forth details of revenues and earnings as a
percentage of total revenues:

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                                            SEPTEMBER 30,                       SEPTEMBER 30,
                                                                      --------------------------          --------------------------
                                                                        2001              2000              2001              2000
                                                                      --------          --------          --------          --------
<S>                                                                   <C>               <C>               <C>               <C>
    Revenues:
         Nursing and assisted living centers ...............            96.9%             98.1%             96.7%             98.1%
         Outpatient therapy ................................             1.2               1.1               1.2               1.1
         Other .............................................             1.9               0.8               2.1               0.8
                                                                      ------            ------            ------            ------
                                                                       100.0             100.0             100.0             100.0
     Expenses:
         Operating and general and administrative
                costs ......................................            91.9              98.4              91.6              95.5
         Lease, depreciation and amortization ..............             6.5               6.6               6.9               6.6
         Interest, net .....................................             4.2               4.8               4.6               5.0
         Loss on impairment of long-lived assets ...........             0.8                --               0.3                --
         Loss on disposal of assets and other items ........             8.0              (0.4)              4.0               0.1
                                                                      ------            ------            ------            ------
         Loss before taxes .................................           (11.4)             (9.4)             (7.4)             (7.2)
         Benefit for income taxes ..........................            (4.5)             (3.4)             (2.5)             (2.5)
                                                                      ------            ------            ------            ------
         Loss before extraordinary item ....................            (6.9)             (6.0)             (4.9)             (4.7)
                                                                      ------            ------            ------            ------
         Extraordinary item ................................              --               0.2                --                --
                                                                      ------            ------            ------            ------
              Net loss .....................................            (6.9)%            (6.2)%            (4.9)%            (4.7)%
                                                                      ======            ======            ======            ======
</TABLE>




                                       9
<PAGE>
REVENUES

         The Company's revenues are derived through the provision of healthcare
services in its network of facilities, including long-term care services such as
skilled nursing care, assisted living and other specialized medical services
such as subacute care and rehabilitative therapy. Nursing and assisted living
center revenues are derived from the provision of routine and ancillary services
for the Company's residents. Outpatient therapy revenue is derived from
providing outpatient therapy services at Company clinics and to outside third
parties. Outpatient therapy revenue decreased during 2001 compared to 2000 due
to the disposal of operations in 2000.

         The Company derives its revenue from Medicare, Medicaid and private pay
sources. The following table sets forth the Company's private pay, Medicare and
Medicaid sources of revenue by percentage of total revenue:


<TABLE>
<CAPTION>
                                             THREE MONTHS          NINE MONTHS
                                                ENDED                 ENDED
                                            SEPTEMBER 30,         SEPTEMBER 30,
                                           ---------------       ---------------
                                           2001       2000       2001       2000
                                           ----       ----       ----       ----
<S>                                        <C>        <C>        <C>        <C>
               Private Pay .........        25%        25%        25%        25%
               Medicare ............        23%        23%        24%        24%
               Medicaid ............        52%        52%        51%        51%
</TABLE>

         Effective January 1, 1999 pursuant to the Balanced Budget Act of 1997
(BBA), all of the Company's skilled nursing facilities were on the Medicare
Prospective Payment System (PPS), which changed significantly the manner in
which the skilled nursing facilities are paid for inpatient services provided to
Medicare beneficiaries. Unless a skilled nursing facility provider chooses to be
reimbursed at 100% of the federally-determined acuity-adjusted rate allowed
under Balanced Budget Refinement Act of 1999 (BBRA) the following applies: In
year one (1999 for the Company), Medicare PPS rates were based on 75% of the
1995 facility-specific Medicare costs (as adjusted by inflation) and 25% of the
federally-determined PPS rate based upon the acuity level of Medicare skilled
nursing facility patients as defined by the federally mandated Resource
Utilization Groupings (RUGs) patient classification system. In year two (2000),
Medicare PPS rates were based 50% on the 1995 facility-specific costs (as
adjusted for inflation) and 50% on the federally-determined acuity-adjusted PPS
rate; in year three (2001), Medicare PPS rates are based 25% on the 1995
facility-specific costs (as adjusted for inflation) and 75% on the
federally-determined acuity-adjusted PPS rate; and in year four (2002) and
thereafter, Medicare PPS rates will be based entirely on the
federally-determined acuity-adjusted PPS rate.

         In November 1999, Congress and the President reached agreement on a
package of Medicare program revisions that restored $2.7 billion in Medicare
funding for skilled nursing providers over the next three years thereby
restoring some of the funding that had been eliminated or excluded by the BBA.
The Balanced Budget Refinement Act of 1999 (BBRA) made numerous revisions
including: (1) the option for a skilled nursing provider to choose between the
higher of current law, as described above, or 100% of the federally-determined
acuity-adjusted PPS rate effective for cost reporting periods starting on or
after January 1, 2000. The company subsequently identified 18 facilities and
filed the necessary applications in order to benefit from the full Federal PPS
rate; (2) a temporary 20% increase in the revenue value for the Federal rate or
the Federal components of the blended rate (homes subject to the full Federal
rate would receive 100% of the enhancement) for 15 of the 44 RUGs to recognize
the costs associated with the more medically complex patients, for the period
April 1, 2000 through September 30, 2000 to allow Centers for Medicare and
Medicaid Services ("CMS") (formerly HCFA) to implement a refinement of RUGs
rates; (3) a 4% increase in the federal component of the blended rate for all of
the RUGs effective for each of the periods October 1, 2000 through September 30,
2001 and October 1, 2001 through September 30, 2002; and, (4) certain other Part
A changes, of lesser significant to the Company; (5) for Part B services, a two
year moratorium effective January 1, 2000 on the $1,500 caps on speech and
physical therapy, and occupational therapy which had a favorable impact on the
Company" Part B Medicare revenue.

         In December 2000, Congress and the President approved an additional $35
billion Medicare relief package through the Benefits Improvement and Protection
Act of 2000 (BIPA). The BIPA will: (1) increase the nursing component of all
RUGs categories by 16.66% over an 18 month period commencing April 1, 2001, and
requires the Comptroller General to complete a study of nursing staff ratios by
August 1, 2002; (2) modify the SNF PPS inflation adjustment to remove the
negative 1% factor for the 2001 year and establish a minus 0.5% factor for years
2002 and 2003; (3) redistribute the 20% Part A enhancement, provided by the BBRA
as applied to three rehabilitation RUGs categories across all 14 rehabilitation
RUGs categories effective April 1,

                                       10
<PAGE>
2001; and, (4) continue the moratorium on the two $1,500 caps on speech and
physical therapy, and occupational therapy through to 2002.; (5) eliminated the
requirement for Part B consolidated billing except for therapy services.
Following the enactment of BIPA, the Company filed the necessary applications in
order to benefit from the full federal PPS rate. The applications were approved.
The Company now has 38 skilled nursing facilities at the full federal rate.

         Average occupancy in nursing facilities for the nine months ended
September 30, 2001 and 2000 was 87.4% and 87.5%, respectively; and for assisted
living facilities, 83.2% and 84.5%, respectively.

THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 2000

REVENUES

         Revenues in the three months ended September 30, 2001 ("2001 quarter")
were $204.0 million, representing a decrease of $26.1 million (11.3%) from
$230.1 million in the three months ended September 30, 2000 ("2000 quarter").
The decrease in revenues includes a $37.6 million decrease from nursing and
assisted living facility divestitures, offset by an increase of $0.9 million
from new management services contracts, and an increase of $10.6 million in
revenue from nursing and assisted living facilities and other business operated
during both the 2000 and the 2001 quarters ("same-facility operations").

         Revenues from same-facility operations increased $10.6 million,
including $11.0 million (a 6.4% increase on a same-facility basis) due to
increased rates, partially offset by a 0.9% decrease in patient census. The
increase was partially offset by a decrease in favorable prior year Medicaid
settlements when comparing periods of $0.3 million and a decrease of $0.1
million from other business operations.

         The Company's average daily Medicare rate increased to $331 (4.7%)
during the 2001 quarter compared to $316 during the 2000 quarter and the average
daily Medicaid rate increased to $117 (3.5%) in the 2001 quarter compared to
$113 in the 2000 quarter.

OPERATING AND GENERAL AND ADMINISTRATIVE COSTS

         Operating and general and administrative costs decreased $ 39.2
million, or 17.3%, between periods, of which $ 15.9 million was a decrease in
expenses for insurance and liability claims primarily relating to the Company's
disposition of its Florida operations. Operating and general and administrative
costs (excluding expenses for insurance and liability claims) decreased $32.2
million relating to operations closed or nursing homes divested during 2000. The
increase in operating and general and administrative costs on a same-facility
basis (excluding expenses for insurance and liability claims) was $8.9 million
(a 5.8% increase on a same-facility basis) and included: (1) an increase in wage
and benefit costs of $6.8 million (a 6.2% increase on a same-facility basis),
(2) an increase in bad debt expense of $0.3 million; (3) and a net increase in
other operating and administrative expenses of $1.8 million (a 1.2% increase on
a same-facility basis).

LEASE COSTS, DEPRECIATION AND AMORTIZATION

         Depreciation and amortization decreased $1.5 million to $9.7 million
for the 2001 quarter compared to $11.2 million for the 2000 quarter. This
decrease included a $0.3 million decrease as a result of divestitures and a $1.2
million decrease from same-facility operations as a result of assets becoming
fully depreciated and as a result of reduced depreciation relating to losses
recorded in 2000 for impairment of depreciable assets.

         Lease costs decreased $0.3 million when comparing periods.



INTEREST

         Interest expense (net of interest income) decreased $2.4 million to
$8.6 million in the 2001 quarter compared to $11.0 million in the 2000 quarter.
The decrease was primarily due to a reduction in the average debt level to
$392.4 million during the 2001 quarter compared to $461.8 million during the
2000 quarter resulting from the Company's use of divestiture proceeds and

                                       11
<PAGE>
income tax refund during 2001 to reduce bank debt balances. The weighted average
interest rate of all long-term debt decreased to approximately 9.28% during the
2001 quarter compared to approximately 9.78% during the 2000 quarter.



LOSS ON IMPAIRMENT OF LONG-LIVED ASSETS

         When management commits the organization to a plan for disposal, assets
held for disposal are adjusted to the lower of the assets' carrying value or its
fair value less costs to sell. In September 2001, the Company made a formal
decision to lease all owned, and sublease all leased nursing facilities in
Texas. As a result of the transaction, and based on the terms of the lease with
Senior Health, the Company recorded in the 2001 quarter a provision of $1.7
million for impairment of Texas nursing properties in accordance with FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of".

LOSS ON DISPOSAL OF ASSETS AND OTHER ITEMS

         A loss of $16.4 million was recorded in the 2001 quarter for the
disposal or closure of facilities and settlements of previously sold operations.
On September 30, 2001, subject to third party approvals including state
licensure, the Company transferred all Texas nursing homes to Senior Health
Properties - Texas, Inc. Under Texas law, governmental approvals are
retroactively effective following successful completion of a survey under new
management. As a result of the Texas transaction, and the closure and sale of
one nursing home and one other property in Wisconsin, the Company has made a
provision of $3.3 million. The Company has also made additional provisions
relating to previously sold operations, which total $2.1 million and relate to
nursing homes in Florida. Based upon an actuarial review of resident care
liability costs, the Company has recorded an $11.0 million additional provision
related to Florida claims for years prior to 2001.

         In the 2000 quarter, the Company sold a nursing facility for $2.8
million, resulting in a pretax gain of $0.9 million before taxes.

INCOME TAXES

         Income tax benefit in the 2001 quarter was $ 9.2 million compared to
$7.8 million in the 2000 quarter. The Company's effective tax rate was 39.6% in
2001 as compared to 36.2% during the same period in 2000. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.

NET LOSS

         Net loss in the 2001 quarter was $14.1 million compared to a net loss
of $14.2 million in the 2000 quarter. The net loss prior to loss on disposal of
assets and other items, loss on impairment of long-lived assets and
extraordinary item (after applicable income tax effect) was $2.7 million for the
2001 quarter compared to a net loss of $14.3 million for the 2000 quarter due to
the changes noted above.




NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2000

REVENUES

         Revenues in the nine months ended September 30, 2001 were $598.2
million, representing a decrease of $91.9 million (13.3%) from $690.1 million in
the nine months ended September 30, 2000. The decrease in revenues includes an
$119.9 million decrease from nursing and assisted living facility divestitures,
a decrease of $0.4 million from outpatient therapy divestitures in

                                       12
<PAGE>
2000 offset by an increase of $3.1 million from new management services
contracts and an increase of $25.3 million in revenue from nursing and assisted
living facilities and other business operated during both the first nine months
of 2001 and 2000 ("same-facility operations").

         Revenues from same-facility operations increased $25.3 million due to:
(1) favorable prior year Medicaid settlements in 2001 totaling $0.8 million; (2)
$24.9 million (a 4.9% increase on a same-facility basis) due to increased rates,
partially offset by a 1.0% decline in patient census: (3) a decrease of $1.3
million when comparing periods due to the accrual in 2000 for blood glucose
revenue for the period of October 1, 1997 through September 30, 2000 due to
favorable rulings regarding reimbursement litigation with the Company's
intermediary; and (4) an increase of $0.9 million from other business
operations.

         The Company's average daily Medicare rate increased to $328 (4.1%)
during the first nine months of 2001 compared to $315 during the first nine
months of 2000 and average daily Medicaid rate increased to $116 (5.5%) in the
first nine months of 2001 compared to $110 in the first nine months of 2000.

OPERATING AND GENERAL AND ADMINISTRATIVE COSTS

         Operating and general and administrative costs decreased $111.2
million, or 16.9%, between periods, of which $36.8 million was a decrease in
expenses for insurance and liability claims primarily relating to the Company's
disposition of its Florida operations. Operating and general and administrative
costs (excluding expenses for insurance and liability claims) decreased $100.5
million relating to operations closed or nursing homes divested during 2000. The
increase in operating and general and administrative costs on a same-facility
basis (excluding expenses for insurance and liability claims) was $26.1 million
(a 5.7% increase on a same-facility basis) and included: (1) an increase in wage
and benefit costs of $20.5 million (a 6.3% increase on a same-facility basis),
(2) an increase in utility costs of $1.2 million due to higher rates in 2001;
(3) an increase in bad debt expense of $1.7 million; and (4) a net increase in
other operating and administrative expenses of $2.7 million (a 0.6% increase on
a same-facility basis).

LEASE COSTS, DEPRECIATION AND AMORTIZATION

         Depreciation and amortization decreased $3.8 million to $30.2 million
for the nine months ended September 30, 2001 compared to $34.0 million for the
nine months ended September 30, 2000. This decrease included a $1.4 million
decrease as a result of divestitures and a $2.4 million decrease from
same-facility operations as a result of assets becoming fully depreciated and as
a result of reduced depreciation relating to losses recorded in 2000 for
impairment of depreciable assets.

         Lease costs decreased $0.2 million when comparing periods.

INTEREST

         Interest expense (net of interest income) decreased $6.9 million to
$27.4 million in the nine months ended September 30, 2001 compared to $34.3
million in the nine months ended September 30, 2000. The decrease was primarily
due to a reduction in the average debt level to $413.0 million during the first
nine months of 2001 compared to $489.3 million during the first nine months of
2000, resulting from the Company's use of divestiture proceeds and income tax
refunds during 2000 and 2001 to reduce bank debt balances. The weighted average
interest rate of all long-term debt decreased to approximately 9.34% during the
first nine months of 2001 compared to approximately 9.60% during the first nine
months of 2000.



LOSS ON IMPAIRMENT OF LONG-LIVED ASSETS

         When management commits the organization to a plan for disposal, assets
held for disposal are adjusted to the lower of the assets' carrying value or its
fair value less costs to sell. In September 2001, the Company made a formal
decision to lease all owned, and sublease all leased nursing facilities in
Texas. As a result of the transaction, and based on the terms of the lease with
Senior Health, the Company recorded in 2001 a provision of $1.7 million for
impairment of Texas nursing properties in accordance with FASB Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of".


                                       13
<PAGE>
LOSS ON DISPOSAL OF ASSETS AND OTHER ITEMS

         A loss of $24.2 million was recorded in 2001 for the disposal or
closure of facilities and settlements of previously sold operations. On
September 30, 2001, subject to third party approvals including state licensure,
the Company transferred all Texas nursing homes to Senior Health Properties -
Texas, Inc. Under Texas law, governmental approvals are retroactively effective
following successful completion of a survey under new management. As a result of
the Texas transaction, and the closure and sale of one nursing home and one
other property in Wisconsin, the Company has made a provision of $3.7 million.
The Company has also made additional provisions relating to previously sold
operations, which total $9.5 million and relate primarily to nursing homes in
Florida. Based upon an actuarial review of resident care liability costs, the
Company has recorded an $11.0 million additional provision related to Florida
claims for years prior to 2001.

         During the first nine months of 2000, the Company sold a nursing
facility for $2.8 million resulting in a pretax gain of $0.9 million, and two
previously closed nursing facilities for $2.7 million resulting in losses of
$1.6 million before taxes. The Company sold seven outpatient therapy facilities
for $0.6 million resulting in a loss of $0.1 million before taxes. The sale of a
Florida Certificate of Need resulted in a pretax gain of $0.3 million. Severance
costs for non-essential personnel resulted in a loss of $0.4 million.

INCOME TAXES

         Income tax benefit in the nine months ended September 30, 2001 was
$15.1 million compared to $17.6 million in the 2000 quarter. The Company's
effective tax rate was 33.9% in 2001 as compared to 35.4% during the same period
in 2000. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.


EXTRAORDINARY ITEM

         The extraordinary loss in 2001 of $45,000 (net of income tax effect) is
related to the write-off of deferred financing costs in connection with debt
reduction upon the sale of nursing facilities. The extraordinary loss in 2000 of
$0.4 million (net of income tax effect) is related to the write-off of deferred
financing costs in connection with debt reduction upon the sale of nursing and
assisted living facilities and upon receipt of an income tax refund.

NET LOSS

         The net loss in the nine months ended September 30, 2001 was $29.6
million compared to a net loss of $32.6 million in the comparable period in
2000. The net loss prior to loss on disposal of assets and other items, loss on
impairment of long-lived assets and extraordinary item (after applicable income
tax effect) was $13.1 million for the nine months ended September 30, 2001
compared to a comparable net loss of $31.7 million for the comparable period in
2000 due to the changes noted above.


LIQUIDITY AND CAPITAL RESOURCES

         The Company had cash and cash equivalents of $4.1 million at September
30, 2001 and $1.6 million at December 31, 2000. Cash flow generated from
operating activities was $66.9 million for the nine months ended September 30,
2001 compared with $39.6 million in the comparable period of 2000.

         The Company experienced a decrease in working capital (excluding cash
and borrowings included in current liabilities) of $54.0 million from $56.1
million at December 31, 2000 to $2.1 million at September 30, 2001. The decrease
in working capital resulted primarily from a decrease in taxes recoverable of
$21.9 million, a decrease in accounts receivable of $20.6

                                       14
<PAGE>
million and a $15.1 million increase in accounts payable and accrued
liabilities. These decreasing components of working capital were partially
offset by a $0.2 million increase in debt service trust funds and a decrease in
due to shareholders and affiliates of $3.4 million.

         Taxes recoverable (including current and deferred) decreased from $33.5
million at December 31, 2000 to $11.6 million at September 30, 2001,
representing a decrease of $21.9 million. The decrease was due to a tax refund
of $22.5 million, partially offset by a current year tax benefit of $0.6
million.

         Accounts receivable at September 30, 2001 were $109.4 million compared
with $130.0 million at December 31, 2000, representing a decrease of $20.6
million. The reduction in accounts receivable included a $26.6 million decrease
within the nursing operations, an increase of $0.4 million within the outpatient
therapy operations, and an increase within the managed facilities and consulting
operations of $5.6 million. Within the nursing operations, billed patient care
and other receivables decreased $18.4 million and third-party payor settlement
receivables (based on Medicare and Medicaid cost reports) decreased $8.2
million. The decrease in billed patient care receivables of $18.4 million
included a decrease of $3.2 million due to an improvement in collection efforts
by the Company between periods. The remaining decrease of $15.2 million reflects
a decrease of $18.0 million due to the sale or closure of nursing facilities and
assisted living facilities, partially offset by an increase of $2.8 million due
to rate increases.

         The decrease in settlement receivables of $8.2 million from December
31, 2000 to September 30, 2001 included decreases of (1) $4.8 million from
collection of a Pennsylvania Medicaid settlement recorded as revenue in 2000;
(2) collection of $2.2 million as a result of Medicaid settlements; (3)
collections from Medicare of $2.8 million of uncollectible co-insurance amounts
recorded as revenue in 2000; and (4) $3.2 million as a result of Medicare cost
report settlements. These decreases were offset by increases of (1) $2.0 million
in revenue recorded in 2001 as a result of Medicaid cost report settlements; and
(2) $2.8 million in revenue recorded 2001 for anticipated Medicare reimbursement
for uncollectible coinsurance amounts.

         Property and equipment decreased $27.8 million from December 31, 2000
to a total of $479.7 million at September 30, 2001. The decrease was the result
of depreciation expense of $27.4 million, asset disposals of $10.5 million and
asset writedowns of $1.7 million. These decreases were partially offset by
capital expenditures of $9.7 million and an increase of $2.1 million as a result
of the reclassification of the net book value of property and equipment related
to the disposal of nursing facilities to Greystone from "Other assets" to
Property and equipment.

         Total borrowings, including bank indebtedness and both current and
long-term maturities of debt, totaled $392.0 million at September 30, 2001 for a
decrease of $59.7 million from December 31, 2000. The decrease was attributable
to the use of $22.5 million from a tax refund, $4.0 million from the sale of
skilled nursing facilities, and the use of cash from operating activities to
reduce borrowings. The weighted average interest rate of all long-term debt was
7.72% at September 30, 2001 and such debt had maturities ranging from 2001 to
2014.

         At September 30, 2001 the Company had a $200 million Revolving Credit
Facility, of which the Company waived access to $25 million, pursuant to an
amendment to the borrowing agreement in the second quarter of 1999. Borrowing
availability under this line of credit totaled $74.3 million at September 30,
2001 (net of outstanding borrowings of $63.0 million, letters of credit in the
amount of $37.7 million and the $25.0 million waived under the amendment).

         During the nine months ended September 30, 2001, Extendicare Inc.
and/or one of its wholly owned subsidiaries acquired and held $19.0 million of
the Company's Senior Subordinated Notes. As of September 30, 2001, Extendicare
Inc, and/or one of its wholly owned subsidiaries held $27.9 million (14.0%) of
the outstanding Senior Subordinated Notes.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Qualitative Disclosures

         As discussed in Note 3 to the Financial Statements, the Company uses
variable-rate debt to finance its operations and has entered into interest rate
swaps to hedge the variable interest cash flow on this debt.


                                       15
<PAGE>
         The Company also has market risk relating to investments in stock and
stock warrants obtained in connection with the 1998 sale of the Company's
pharmacy operations. In effect, these holdings can be considered contingent
purchase price whose value, if any, may not be realized for several years. These
stock and warrant holdings are subject to various trading and exercise
limitations and will be held until such time that management believes the market
opportunity is appropriate to trade or exercise such holdings.

         With respect to the stock and warrant holdings, management monitors the
market to adequately determine the appropriate market timing to act in order to
maximize the value of these instruments. With the exception of the above
holdings, the Company does not enter into derivative instruments for any purpose
other than cash flow hedging purposes. That is, the Company does not speculate
using derivative instruments and does not engage in trading activity of any
kind.


Quantitative Disclosures

         The table below presents principal (or notional) amounts and related
weighted average interest rates by year of maturity for the Company's debt
obligations and interest rate swaps (dollars in thousands).

<TABLE>
<CAPTION>
                                                                                                    AFTER                     FAIR
                                    2001         2002          2003        2004          2005        2005        TOTAL        VALUE
                                    ----         ----          ----        ----          ----        ----        -----        -----
<S>                                <C>          <C>           <C>         <C>            <C>       <C>          <C>          <C>
LONG-TERM DEBT:
Fixed Rate ..............          4,953           674           675         710          700      206,554      214,266      232,139
Average Interest Rate ...           7.73%         7.27%         7.42%       7.52%        7.65%        9.32%        9.26%
Variable Rate ...........          1,795         7,398        70,412      59,918          469       35,396      175,388      171,742
Average Interest Rate ...           5.96%         5.06%         5.10%       5.59%        3.66%        3.04%        4.84%
INTEREST RATE SWAPS:
Notional Amount .........             --        50,000        25,000          --           --           --       75,000        1,622
Average Pay Rate
  (fixed rate) ..........             --          5.73%         5.53%         --           --           --         5.63%
Average Receive Rate
  (variable rate) .......             --          3.51%         3.51%         --           --           --         3.51%
</TABLE>

         The above table incorporates only those exposures that exist as of
September 30, 2001 and does not consider those exposures or positions which
could arise after that date or future interest rate movements. As a result, the
information presented above has limited predictive value. The Company's ultimate
results with respect to interest rate fluctuations will depend upon the
exposures that arise during the period, the Company's hedging strategies at the
time and interest rate movements.

Forward-Looking Statements

         Statements contained in this report that are not historical facts are
forward-looking statements. Forward-looking statements can be identified because
they generally contain the words "anticipate", "believe", "estimate", "expect",
"objective", "project", or similar expression. Such forward-looking statements
are necessarily estimates reflecting the best judgment of the party making such
statements based upon current information and involve a number of risks and
uncertainties and other factors that may cause actual results, performance or
achievements of the Company to differ materially from those expressed or implied
in the statements. In addition to the assumptions and other factors referred to
specifically in connection with these statements, such factors are identified in
the Company's filings with United States securities regulators and include, but
are not limited to, the following: changes in the health care industry in
general and the long-term care industry in particular because of political and
economic influences; changes in regulations governing the industry and the
Company's compliance with such regulations; changes in government funding levels
for health care services; liabilities and other claims asserted against the
Company; the Company's ability to attract and retain qualified personnel; the
availability and terms of capital to fund the Company's capital expenditures;
changes in competition; and demographic changes. Given these risks and
uncertainties, readers are cautioned not to place undue reliance on the
Company's forward-looking statements.




                                       16
<PAGE>
PART II

                                OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

         There are no material pending legal proceedings other than litigation
arising in the ordinary course of business. Management believes, on the basis of
information furnished by legal counsel, that none of these actions will have a
material effect on the financial position results of operations of the Company.

ITEM 2.           CHANGE IN SECURITIES

         None

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

ITEM 5.           OTHER INFORMATION

         None

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

(a)      List of Exhibits:

         None

(b)      Reports on Form 8-K

         None




                                       17
<PAGE>
                        EXTENDICARE HEALTH SERVICES, INC.

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                        DESCRIPTION
-----------                        -----------
<S>                                <C>
    None
</TABLE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

EXTENDICARE HEALTH SERVICES, INC.

Date: November 14, 2001            By:  /s/ MARK W. DURISHAN
      -----------------                 -------------------------------------
                                            Mark W. Durishan
                                            Vice President, Chief Financial
                                              Officer, Treasurer and Director
                                              (principal financial officer and
                                              principal accounting officer)




                                       18